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Uber Has Significant Upside Potential, Analyst Says
Stock Analysis & Ideas

Uber Has Significant Upside Potential, Analyst Says

Uber Technologies (UBER) is an American technology company offering services such as ride-hailing, food delivery, package delivery, couriers, freight transportation, and, through a partnership with Lime, electric bicycle and motorized scooter rental. It seems to offer significant upside potential at current levels based on comps and asset value growth, according to Bank of America Securities analyst Justin Post.

The analyst’s analysis reflects that the company’s remaining stake in DiDi Global (DIDI), the largest ride-sharing company in China, which initiated its IPO at $14 per share on June 30, was about $5.9 billion in asset value post-stake sale. That represented the largest of Uber’s $12 billion of investments.

Furthermore, after selling a short stake in January this year, Uber now has 12% equity ownership in DiDi, which is equivalent to $9.4 billion in equity value exceeding asset value by $3.5 billion. Therefore, based on 1.9 billion shares outstanding for Uber, Post estimates that the company has $2 per share in equity value, which seems encouraging. (See Uber stock chart on TipRanks)

From a valuation perspective, the 5-star analyst comments that based on SOTP valuation, Uber is trading at a big discount to its U.S. peers including Lyft (LYFT) and DoorDash (DASH).

Post said, “We see the magnitude of the discount to a SOTP valuation using comp multiples as an opportunity to Uber stock appreciation,” and reiterated a Buy rating and a price target of $71 on the stock, “given upside potential from valuation multiple appreciation.”

Why Has the Stock Underperformed?

According to the analyst, four key factors can be assigned as reasons for underperformance. These include impacted supply/demand dynamics and the company’s guidance for 20% Mobility take rates in the second quarter, which indicate impact from its driver incentive program. Additionally, Uber’s international exposure lags that of its U.S. peers, and a wider-than-expected U.K. driver settlement amount might reflect larger future cost impact.

Post is unsure whether these issues are the main driver for the company’s underperformance, and he maintained a bullish stance on the stock. He expects the overhang to subside in 3Q, as the economy further reopens and the rate of vaccination progresses.

The analyst anticipates stiff competition to endure but remains positive on Uber’s potential to achieve EBITDA profitability in 3Q, driven by cost-cutting measures and Delivery profitability inflection, which could boost the price to bookings valuation.

Overall, Post believes that the company is near to reach break even profitability by the end of 2021, inculcating a higher valuation multiple.

On TipRanks, Uber has an analyst rating consensus of Strong Buy, based on 22 Buy and 3 Hold ratings. The average Uber price target is $72.43, indicating a potential 40% upside from current levels. Shares have lost 4.3% over the past six months.

According to the new TipRanks’ Risk Factors tool for the company, the UBER stock is at risk mainly from three factors: Finance and Corporate risk, Regulatory and Legal risk, and Production risk, which contribute 27%, 23%, and 17%, respectively, to the total risk for the stock. Within the Finance and Corporate risk category, Uber has 16 risks.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your analysis before making any investment.

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